Valeant Pharma seeks to decrease debt load; oil up with promising agreement on horizon; ‘one-offs’ gain

By Colin Hanner

Chicago, Nov. 15 – Movement in distressed debt-land on Tuesday had a “better tone,” as one trader said, crediting the upticks to rebounding oil futures for the first time since Nov. 9 and momentum in the coal sector.

“The market got back some of the losses from yesterday,” the trader said.

One of those energy names that follows fluctuations in oil news closely is California Resources Corp., and it had one of the biggest gains of the day following news that some Organization of Petroleum Exporting Countries would be meeting informally to discuss supply cuts.

Peabody Energy Corp. continued to ride the momentum that the coal sector has had since the election night win by U.S. president-elect Donald Trump.

Climbing down the energy sector totem pole was Stone Energy Corp., which failed to make an interest payment on one of its senior notes and received an expectation from S&P that the company will elect to file for Chapter 11 instead of making an interest payment on those notes.

In healthcare and pharmaceuticals, Valeant Pharmaceuticals International Inc. seemed to create the most buzz in the news out of any single distressed name when its chief executive officer spoke at a healthcare conference in New York. Its notes weren’t “overly active,” a trader said.

Community Health Systems Inc. and Quorum Health Corp. continued to rise amid its losses from last week’s election.

Global satellite company Intelsat SA saw single-digit gains in many of its regularly-traded notes, perhaps due to news related to the company that came out of the Middle East and Africa.

Energy in motion

“The positive momentum continues.”

That’s what one trader said about Peabody Energy, which continues to capitalize on the burgeoning coal sector.

The 6½% notes due 2020 were up 2 points from Monday’s levels to 61, and the 10% notes due 2022 saw a 1-point increase for the second-straight day, settling at 86.

A Trump presidency has shown promise for the coal sector, as stump promises of regulation rollback and acceptability of coal compared to his opponent has companies profiting on the potential of what’s to come.

Outside of coal, oil futures were up amid OPEC discussions.

West Texas Intermediate coal was up $2.43, or 5.61%, to $45.75.

Brent crude was up $2.52, or 5.67%, to $46.95.

With OPEC supply cut talks scheduled for Nov. 30, oil has fluctuated with sentiment on how likely the cuts are.

Russia plans to consult with other OPEC countries later this week, and discussions between Mohammed Barkindo, OPEC’s secretary-general, and Khalid Al-Falih, Saudi Arabia’s Minister of Energy and Industry, seem to be happening behind closed doors, according to a report from Bloomberg.

California Resources Corp.’s 8% notes due 2022 were up 2 points to 71, a trader said, and another trader said the 5% gain on the day had the notes around a 71½ handle.

Denbury Resources Corp.’s 6 3/8% notes due 2021 were up 2 points to 80½, a market source said, and MEG Energy Corp. followed suit with a 2-point gain of its own in its 7% notes due 2024.

A trader said Vanguard Natural Resources LLC’s 7 7/8% notes due 2020 were up 2¼ points to 43 3/8.

Natural gas and oil company Exco Resources Inc. saw movement in its 8½% notes due 2022, which were down 1 7/8 points to 41½, according to a market source.

Gibson Energy LLC, a “name not traded too often,” as one trader said, saw a 5-point increase in its 8 7/8% notes due 2018, which settled at 78¾.

Stone cold

Stone Energy failed to make a $29 million interest payment on its 7½% notes due 2022 that was due on Tuesday, opting instead to use the 30-day grace period provided by the indenture governing the notes.

The company will have until Dec. 15 to fulfill the interest payment, or default on the notes, under the terms of the restructuring agreement.

The notes were down 1 point on the day’s trading to a 56 7/8 handle, per a market source, and a trader said they were trading in the same 56-57 zip code, remarking that the notes had not been trading often.

Paying down debt

Valeant Pharmaceuticals has committed to sell off its non-core assets, a move it hopes will allow the company to pay down about $5 billion of debt. The company has over $30 billion of debt, its chief executive said Tuesday.

“There are some non-core assets that we may want to choose to sell to help pay down debt,” chairman of the board and chief executive officer Joseph C. Papa said at the Stifel 2016 Healthcare Conference in New York on Tuesday.

“Because of the constraints that we have on thirty-plus billion of debt, we want to reduce that debt.

“We have initiated non-core asset sales,” Papa said. “[Using these proceeds], we would seek to pay down debt of the Valeant company by approximately $5 billion.

“If there are some offers for assets that are core to us but will help us substantially pay down debt we’d have to look at them, just for the benefit of our shareholders and for the benefit of our debt holders and our employees. We’ll look at things if they are substantial.

“But to be clear, the commitment [that the company has made] was for selling the non-core assets,” Papa said.

The company has received offers for some core businesses, though he would not specify which parts of the business.

In recent weeks, Valeant’s name has been attached to reports that the company would be interested in the potential sale of Salix Pharmaceuticals Co. to Takeda Pharmaceuticals Co. for around $10 billion.

One trader said that there wasn’t much movement because of the news, but another trader saw an uptick in the 6 3/8% notes due 2020, which were up 3/8 point to 87½.

Hospitals and pharma

Community Health Systems’ 8% notes due 2019 were up 1½ points to 79¼, a trader said, and the 6 7/8% notes due 2022 were up 1½ points to 68¾.

Spinoff Quorum Health’s 11 5/8% notes due 2023 were up to 75½, a trader said.

After going down by double digits last week, Community Health and Quorum may be rebounding off remarks by president-elect Trump that he would not completely gut the Affordable Care Act and would instead keep some components of it.

Concordia International Inc. was unchanged in its 7% notes due 2023, which stayed around a 38½ handle, a trader said, while the 9½% notes due 2022 were up 1 point to 43 on a dozen trades.

Soaring satellites

Announcing a multi-year extension with a telecommunications service provider Sonema, Intelsat capitalized on several of its notes during Tuesday’s session.

The 6¾% notes due 2018 were up 1 3/8 points to 68, a trader said, and the 7¾% notes due 2021 were up 1 point to 35.

Also seeing a 1-point uptick were the 8 1/8% notes due 2023, which settled at a 34¾ handle, a market source said.

Though financial details were not made immediately available, the extension will expand services to more remote areas of Africa, according to a release.

Round up

“In general, there was a better tone today especially in some of the one-off names,” a trader said, referring to some distressed outliers that aren’t typically movers.

A trader said that check cash service CNG Holdings Inc.’s 9 3/8% notes due 2020 were up 2¼ points to 72¼.

CF Industries Holdings, Inc.’s 5.15% notes due 2034 were up 1¼ points to 85¾, a trader said.

In the communication realm, Frontier Communication Corp.’s 6 7/8% notes due 2025 were down ¼ point to 78½, and the iHeartMedia Inc. 14% notes due 2021 were up ¼ point to 35 3/8, a trader said.

Avaya Inc.’s 10½% notes due 2021 were up 1¾ points to 35¾ on 6 trades, a trader said.

Another trader said the notes continue to “tick higher” and saw the same notes around a 35 handle.

Devika Patel contributed to this review.

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